Thesis (S.M.)--Harvard-MIT Program in Health Sciences and Technology, 2012.

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Cataloged from PDF version of thesis.

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Includes bibliographical references (p. 63-67).

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Over the past ten years there has been increasing public concern regarding the rising costs of pharmaceuticals. Drug expenditure is the fastest growing sector of healthcare costs in the United States. The structure of the U.S. healthcare system allows pharmaceutical companies to freely price their drugs. Then payers decide whether and how to cover these drugs. Payers have at their disposal several utilization management tools, such as tiering and prior authorizations, to steer their members to less costly drugs. However, the ability of payers to implement these tools varies significantly depending on whether the drug is covered under the pharmaceutical benefit / Medicare Part D provisions of healthcare plans or the medical benefit / Medicare Part B provisions. Drugs covered under the pharmaceutical benefit / Part D are distributed via retail pharmacies and, in general, are oral pills. Drugs covered under the medical benefit / Part B are physician administered drugs and, in general, are injectables or intravenous drugs. As pharmaceutical companies increasingly price their drugs at higher and higher levels, payers must take a drug's pricing into account when determining how to cover these drugs. This thesis assesses the role pricing plays in how a drug is covered. Two different classes of drugs were chosen to examine this topic: fixed dose combination (FDC) cardiovascular drugs and intravenous oncologies. FDC cardiovascular drugs were chosen because they are covered under the pharmacy benefit / Part D and are considered to have questionable efficacious value over their individual drug components. Intravenous oncologies were chosen because they are covered under the medical benefit / Part B and represent a highly politicized therapy area. These two therapy areas are illustrative of strongly contrasting classes of drugs. Literature review and public sources were used to obtain prices for the select cardiovascular FDCs and oncologies. Medicare's Formulary Finder was used to obtain the coverage level for the cardiovascular FDCs. This preliminary information showed that the most expensive of the select FDCs, Caduet, has the worst coverage. The literature review suggested that Provenge and Avastin, the most expensive of the select oncologies, had difficulty obtaining coverage. To confirm these results, interviews were conducted with a variety of payers. These interviews focused on what factors went into the coverage decision-making process for cardiovascular FDCs and intravenous oncologies. Interviews were also conducted with an oncologic distributor to determine distributors' impact on price. We hypothesized that price was the driving reason for Caduet's, Provenge's, and Avastin's relatively poor coverage. However, our hypothesis was not entirely confirmed. Payers confirmed that price and contracting were the driving factors for Caduet's relatively poor coverage, but they indicated that the situation was not as simple for the intravenous oncologies. Although price does play a small role in the coverage decision-making process for intravenous oncologies, other factors such as public policies and the unmet need in the therapy area drive coverage decisions more than price. Additionally, payers indicated that they lack the ability to steer members to less costly intravenous oncologies due to the drug acquisition and reimbursement structure of the medical benefit. Consequently, payers are beginning to utilize new techniques such as specialty pharmacies to help control utilization of these products. Also, other organizations such as certain oncologic distributors are attempting to implement cost-effective guidelines for intravenous oncologies. Our results have significant implications for what pharmaceutical companies should be considering when pricing their drugs, and highlight the pricing and coverage issues in the current healthcare system's structure that payers and other organizations are facing.

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by Drew Cronin-Fine.

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67 p.

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eng

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Massachusetts Institute of Technology

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